Facts
- Mr. Towers was a director of Premier Waste Management Ltd (PWM).
- While acting in that capacity, he entered into an informal arrangement with a third-party supplier from which he personally obtained free skips and waste-disposal services.
- The arrangement was negotiated and implemented without any disclosure to, or approval from, the board of PWM or the company in general meeting.
- PWM did not suffer any identifiable financial loss; the company had not been contractually entitled to the free services, nor had it paid for them.
Issues
- Whether a director breaches fiduciary duties by accepting third-party benefits obtained by virtue of his office without the fully informed consent of the company, even if no quantifiable loss is suffered.
- Whether the absence of company loss, or the director’s contention that the company would never have received the benefit in any event, excuses the breach under the Companies Act 2006 and the equitable no-profit rule.
Decision
- The Court of Appeal affirmed that Mr. Towers stood in a fiduciary relationship to PWM and owed the company the duty of undivided loyalty.
- By obtaining free waste-management services that were available to him only because he was a director, Mr. Towers profited from his position without authorization and thereby breached the “no-profit” aspect of the fiduciary obligation.
- The court ordered him to account to PWM for the monetary value of the services received. The measure of relief was restitutionary, not compensatory: the object was to strip the profit, not to compensate for loss.
- It was irrelevant that PWM suffered no financial detriment. Equity requires an errant fiduciary to disgorge unauthorized gains simply because they were derived from the fiduciary position.
- The statutory framework in sections 175 (duty to avoid conflicts) and 176 (duty not to accept benefits from third parties) codifies, but does not dilute, these traditional principles.
Legal Principles
- Directors occupy a position of trust. They must avoid situations in which their personal interests conflict, or may possibly conflict, with the interests of the company.
- The “no-profit” rule is strict. Liability arises once the fiduciary profit is established; questions of honesty, good faith, or company loss are generally immaterial.
- Sections 175 and 176 of the Companies Act 2006 require prior authorization—either by the board (where permitted) or by the shareholders—before a director may retain a benefit that might give rise to a conflict or arise from the exploitation of his office.
- Where authorization is absent, section 178 confirms that the equitable remedies continue to apply. The court therefore applied the traditional account of profits rather than damages.
- The fundamental policy is preventive. By stripping profits automatically, the law deters directors from placing themselves in positions of temptation and protects corporate confidence that decisions are taken exclusively for the company’s benefit.
- The decision illustrates the difference between the compensatory remedy for breach of the duty of care (section 174) and the strict restitutionary remedy for breach of loyalty-based duties.
Conclusion
Towers v Premier Waste Management Ltd clarifies that the statutory duties in sections 175 and 176 replicate, rather than relax, the stringent equitable rules governing fiduciary conduct. A director who secretly receives a benefit attributable to his directorship must account for its value, even when the company remains financially unharmed. The ruling highlights the preventive, deterrent, and confiscatory nature of the no-profit rule and emphasizes the necessity for full disclosure and formal approval before any personal benefit may be retained.
